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Calif. league letter on T-report defends tax status

RANCHO CUCAMONGA, Calif. (1/24/08)--California Credit Union League President/CEO Bill Cheney defended credit unions' tax-exempt status in a letter to the editor of a California business publication. The letter responded to an article about a recent U.S. Department of Treasury report on corporate tax reform. Cheney's letter appeared in the Jan. 18 issue of Silicon Valley/San Jose Business Journal and referred to a Jan. 11 article, "Credit union leaders' patience taxed by report recommendation." Credit unions "continue to seek clarification of statements from a recent U.S. Department of Treasury report on corporate tax reform about our well-deserved exemption from federal income taxes," Cheney wrote. The department "is right to require that a tax exemption granted to any organization or industry is good public policy and has value for consumers," Cheney said. "It is wrong to look to credit unions as an income stream, and Treasury should pay less attention to the hollow complaints from the banking industry about unfair competition." He outlined the history of the tax-exemption in Congress, starting with the decision in 1937 to exempt credit unions "because of our unique structure and role in the financial services industry." Congress confirmed the exemption in 1951 and 1998, he said, adding that every President in modern times has supported it. "Credit unions were created to 'promote thrift and provide loans for provident purposes,' and despite statements to the contrary by the banking industry, credit unions continue to provide these essential services to working Americans even as we evolve to meet growing consumer financial services needs," Cheney wrote. "The banking industry refuses to recognize that the credit union tax exemption is based on structure--not size," he said. "Their argument otherwise is laughable in the face of record-breaking banking industry growth year after year, and as more than 2,300 banks now operate under Subchapter S of the IRS Code and thus do not pay corporate taxes--a fact Treasury overlooked," he said. Credit unions provide healthy competition and encourage other financial institutions to work harder to keep customers satisfied. Otherwise, "banks could charge higher fees, pay lower interest on savings and increase loan rates," Cheney said. He cited the Credit Union National Association's studies indicating bank customers nationally save more than $4 billion annually because of credit union competition that forces banks to keep rates competitive. "That's good news for consumers, communities and businesses alike," he added. He also discussed the differences in how banks and credit unions generate capital. "Nothing stops banks from adopting the credit union model, yet not one bank ever has," Cheney said. "Maybe it's because bank directors are paid while credit union board members serve as volunteers.